More proof the ‘precious metals assets’ on Chinese commercial bank balance sheets have little to do with the ‘surplus’ gold in China’s domestic market.
One of the topics about the Chinese gold market that has not been fully illuminated is the ‘gold’ on the 16 Chinese commercial banks’ balance sheets. At the end of 2015 the aggregated ‘precious metals assets’ on the bank balance sheets accounted for 598 billion yuan (RMB), which translates into approximately 2,682 tonnes of gold – if all the precious metals were gold related, which is very likely.
In my previous post on this subject we learned from examining the banks’ annual reports from 2015, that there are at least five gold assets that can appear in the ‘precious metals’ line item on the balance sheets. Namely:
Gold savings that belong to the banks’ customers (Gold Accumulation Plans, GAP) Gold inventory for the banks’ retail gold bar business Gold leasing business Gold held for hedging purposes Gold held outside China In this post we’ll examine more thoroughly the (Chinese and English) annual reports from 2007 until 2014 of the 16 banks, to learn more on what these huge tonnages represent. The most significant new finding is that Chinese banks conduct synthetic leases – in other words: swaps. By performing synthetic leases, Chinese banks can show ‘precious metals assets’ but no ‘precious metals liabilities’ on their balance sheets. Then, at the very surface it appears these banks own gold, in reality they own zero gold.
This post was published at Bullion Star on 18 Nov 2016.
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